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Small and medium enterprises: Driving Bangladesh's economic renaissance

Md Fahim Hasan Mahdi
17 May 2024 19:07:13 | Update: 17 May 2024 19:07:13
Small and medium enterprises: Driving Bangladesh's economic renaissance
— TBP Photo

Bangladesh, sometimes referred to as "My Bengal of gold," is well known for its stunning natural surroundings, extensive cultural legacy, and kind people. 

In this mosaic of diversity, the Small and Medium Enterprise (SME) sector shines as a harbinger of economic advancement, propelled by the energy of youth and the tenacity of diverse social groups.

The SME phenomenon is rooted in entrepreneurship, which is the courage of people to start new businesses, take calculated risks, and rise to challenges in the name of success. 

It's more than just a job decision; it's a way of thinking that is defined by qualities like passion, vision, risk tolerance, and inventiveness. The spirit of invention, problem-solving, and the unwavering quest to bring ideas to life are personified by entrepreneurs.

The goal of entrepreneurship is to launch, grow, and manage a company. Entrepreneurs produce new goods, services, or concepts that satisfy consumer needs and provide value for a certain market segment by utilising their creativity, abilities, and vision. Individuals who choose this route frequently assume financial risks, necessitating tenacity and problem-solving abilities. Being an entrepreneur is more of a way of thinking than a career. 

It is characterised by several traits like grit, enthusiasm, and the need to solve problems and bring ideas to reality.

In Bangladesh, SMEs encompass businesses falling below specific thresholds in terms of income, assets, or workforce size. Small-size organisations have fewer than 50 employees, while medium-sized enterprises have fewer than 250. 

These enterprises play a pivotal role in the country's economy, contributing approximately 25 per cent to the GDP, according to reports by the Bangladesh Bureau of Statistics (BBS). Business support organisations (including sectoral business associations, chambers of commerce, and trade associations) are therefore influential in Bangladesh.

One of the remarkable facets of Bangladesh's SME landscape is its resilience and adaptability. 

Over the past few decades, the sector has witnessed exponential growth, with the number of SMEs increasing four to five times since the mid-1980s. This expansion is not confined to urban areas; even rural regions have witnessed the proliferation of SMEs, contributing significantly to both rural and urban development. 

Women, in particular, have been active participants in this sector, with the vibrant e-Commerce Association of Bangladesh serving as a testament to their increasing presence. 

The contribution of SMEs to a country's long-term growth through industrialisation is considered crucial. Based on data from the Bangladesh Bureau of Statistics (BBS), the manufacturing sector, encompassing cottage, micro, small, and medium-sized enterprises (CMSME), accounted for 24.45 per cent of the GDP in 2022, representing an increase from 23.36 per cent in 2021. The Government aims to increase SMEs contribution to GDP to 32 per cent by 2024. 

SMEs play a vital role in the modern world economy. They contribute more than 50per cent of GDP in high-income countries worldwide. In fact, they are the backbone of Europe's economy, representing 99per cent of all businesses in the EU. 

The impact of SMEs extends beyond their direct contribution to GDP. They play a crucial role in the supply chain, supporting industries, and fostering economic development. They also constitute 50.91 per cent of the micro-economic sector, employ 35.41 per cent of workers, and contribute 48.41 per cent to Bangladesh's GDP, according to SMEs in Bangladesh Report 2022.

Moreover, SMEs are not only contributing to economic growth but also fostering social and environmental sustainability. They promote environmentally friendly business practices, driving growth in sectors such as renewable energy and sustainable agriculture. 

Additionally, SMEs encourage inclusivity and gender equality, with women playing a significant role in the sector's expansion. Furthermore, SMEs encourage export-focused activities, helping to create a more balanced economy which is less dependent on any single sector. 

However, this sector is also facing many challenges. The SME sector in our nation lacks sufficient data and information, which makes it difficult to conduct thorough research in this area. There is also limited internet connectivity and digital literacy. 

Additionally, it has become customary to regularly revise the definition of SMEs, which makes it difficult to evaluate the SME sector's true state. Aside from that, one of the biggest barriers to this sector's development is access to bank financing. According to Bangladesh Bank, Bangladeshi women entrepreneurs got only 4.7per cent of total CMSME loans disbursed in 2022.

Currently, the situation for CMSMEs in rural areas is deteriorating due to a lack of bank funding. This has led to a decline in both local and foreign markets for these enterprises.

Bankers have reported that no new plans have been established by the central bank to aid CMSMEs in their recovery from the shocks of the Covid-19 epidemic, following repayment. Rural firms are facing even more hurdles due to a substantial rise in bank loan interest rates since June of last year.

This increase is a result of the central bank's contractionary monetary policy, which aims to control inflation. As a result, the costs of capital and production have also increased for these enterprises.

Despite all these challenges, SMEs have thrived in Bangladesh's online space, thanks to the lower operational mobility of e-commerce. The estimated number of small and medium-sized enterprises (SMEs) in Bangladesh is 7,900,000 establishments. 

Out of the total, 93.6 per cent are categorised as tiny, while 6.4 per cent fall under the medium category. The sector's importance is underscored by its substantial contribution to employment generation, with an estimated 24 million people engaged in SME-related activities, comprising around 30 per cent of the total employed workforce. 

Banks have also organised loan distribution programs with the greatest importance allocated to the SME sector.

Aspirations and concerted efforts are the driving forces behind the progress of SMEs in Bangladesh. With the right support and resources, these enterprises have the potential to transform the economic landscape, create opportunities for growth and development, and build a better future for all. SME is a key sector for achieving the upper-middle-income status of Bangladesh. 

It is imperative that stakeholders, including government bodies, business support organisations, and the wider community, come together to nurture and harness the potential of SMEs, ensuring their continued success and contribution to the nation's prosperity.

SMEs represent the engine of Bangladesh's economic renaissance, driving progress, innovation, and inclusive growth. As we navigate the challenges of the modern world, let us embrace the spirit of entrepreneurship, harnessing the power of SMEs to build a brighter future for generations to come.

This writer is a student of the Department of Mass Communication and Journalism at the University of Dhaka.